The most consequential decision a landlord can make is when to buy property, and when to sell it. If you are sitting on industrial property right now, our opinion is that now is the time to sell.
It’s rare that we see a “no-brainer” in commercial real estate, but liquidating your industrial property in 2022 is one of the most no-brainer decisions we have seen in a long time. Here’s why.
1. Prices Are High Right Now
Buy low, sell high. That’s Investing 101, right? Well, prices are high right now. What better reason to at least consider selling?
We have seen insane price increases for industrial property. Square footage that went for $250 two years ago is fetching $350, even $450 square feet. Our industrial landlords are looking down the barrel of the shortest ownership cycle in their career, fielding offers worth of The Godfather — offers they can’t refuse.
My industrial clients are adjusting their retirement time horizons from ten years to five years on the backs of rabid demand for industrial square footage.
2. It’s the Hardest Asset for Tenants to Find Right Now
Commercial real estate lives and dies by tenant demand. Right now, the highest-demand square footage for lease is industrial. The entire country is currently experiencing record-lows of vacancy.
In addition to driving up NOI and valuations, this limited supply and heavy demand is pushing the cost of occupancy up. Industrial tenants are facing rent increases they can barely shoulder, causing them to consider remote areas and downsizing to keep their doors open. Winnipeg has seen rental rates per square foot increase from $7 to $9, with new leases pulling rents as much as $14 per square foot.
The insatiable demand for industrial square footage makes industrial property one of the hottest assets on the market right now. If your strategy is to strike while the iron is hot, it’s fair to say that we have never seen a hotter market.
3. Not Much Land is Designated for Industrial Builds
The supply crunch for industrial land isn’t going to slow down this year. The availability of raw land for industrial development is just as tight. Developers are looking far afield, ditching population centers like Toronto in favor of far-flung locations to develop new industrial property.
In Waterloo Region, we have seen properties that sold for $80,000 per acre in 2008 fetching prices north of $400,000 or even $500,000 per acre. Property in Southwestern Ontario, from Golden Horseshoe all the way to Windsor, have exploded from $200-$300k just two years ago to $800k-$1.5M today.
The industrial land rush has even reached as far as Manitoba, where a market that had been flat for decades has exploded within the last few months. Winnipeg has seen a record-smashing 1.2 million square feet of industrial space absorbed in 2021 alone.
Bottom line — developed urban-core industrial land is like gold in today’s market. Even remote industrial land and developed property is in high demand. People are buying up industrial land like it’s going out of style, paying whatever price they have to pay. Don’t miss the moment.
4. Users are Looking to Buy
Investors aren’t the only market for your property; in fact, they may not even be the best market. Never underestimate the users of industrial property — even your own tenants — as the best buyers of industrial property. Users are buying up their own facilities with a vengeance right now, and paying high prices to get them.
Why? Tired of being hammered by rent increases, tenants are scrambling to lock in property payments on facilities they can occupy long-term and grow into. The best way to do that is to own their own facility, and tenants with the wherewithal to do so are jumping at the chance. Your tenant may be your best buyer; it’s at least worth raising the issue with them.
5. Uncertainty For the Future
If the industrial market is so hot, why sell now? What if there’s a long runway? What if industrial keeps booming across the country? What if your property value keeps going up? Will you feel stupid if you cash out today and the prices double two years from now?
Maybe … or maybe not. Someone is always left holding the bag when the market turns. You don’t want it to be you. And while the market has a lot of momentum now, many credible scenarios could lead to the bottom falling out at any time.
One of the reasons people are in a buying frenzy right now are rumbles about interest rate hikes. Industrial property is particularly susceptible to changes in interest rates. If interest rates go up, the market may cool, and you may have missed your window. Even refinancing will become more expensive.
Currently, very little land across the country is industrial-ready — but that could change. If large areas of land get designated for industrial use to meet the demand, an influx of supply could kill your chances to get top-dollar.
Finally, consider all the uncertainty in the world right now — pandemic, foreign wars, disrupted supply chains. Liquidity is the ultimate hedge against geopolitical and geoeconomic uncertainty, and right now investors have a once-in-a-generation opportunity to liquidate in conditions of record-high demand.
Imagine if you felt compelled to liquidate at the bottom of the market. Why risk it?
Smart investors act quickly when favorable conditions present themselves. My analysis tells me that we are in a historic seller’s market for industrial property — meaning it’s one of the best times ever to be a seller of industrial property. You can benefit from insatiable demand and low supply to get high prices from a quick sale.
If you’re even considering cashing out your industrial property, let’s have a quick conversation about it. Jump on a call with me and my team, tell us about the property you are considering selling, and get our professional opinion of its position in the marketplace. At the very least, you will know whether you are making the right decision by selling or by holding.